8 minute read
LETTER TO UNITHOLDERS
Dear Unitholders,
On a solid foundation of some of the most affordable rents in Canada, our commitment of delivering the best product quality, service and experience to our Resident Members was rewarded in 2021 with strong operating results. Our key performance metric, Funds from Operations (“FFO”) per Unit result of $2.94 was 7.3% higher than the year before, and compounds on our current track record of FFO growth through difficult economic conditions.
SAM KOLIAS
Chairman and Chief Executive Officer
Our Boardwalk team continued to focus on optimizing revenue through the varying pandemic environment in 2021 and delivering our essential service of affordable housing to Canadians. Most of the Trust’s portfolio saw balanced market conditions, which allowed for inflationary adjustments to rental rates in the second half of 2021 in those markets. Our team’s focus on finding innovative and efficient ways to deliver our product quality, service and experience to our Resident Members offset some of the non-controllable expense increases resulting in positive same property Net Operating Income (“NOI”) performance with improved operating margins.
In the Right Places at the Right Time
Housing fundamentals in our core markets continue to improve from the pandemic pause with higher population growth and moderated housing supply. With the improved macro backdrop of a more diversified economy, stronger commodity prices, and high affordability of our unregulated Western Canadian portfolio, we believe Boardwalk’s portfolio is well positioned to continue on our track record of delivering strong growth in both FFO per unit, and NAV per unit.
Revenue Optimization
The majority of our markets are positioned with high occupancy and have begun to see a reduction of previously provided rental incentives. These reductions in incentives allow for a significant revenue opportunity for the Trust. Boardwalk is positioned to increase revenues in lower occupancy areas by maintaining and further gaining occupancy and in higher occupancy areas through positive adjustments in rental rates and reduction in incentives to improve operating margins on the foundation of high affordability within our portfolio.
Our Resident Members
One of our largest stakeholders, our Resident Members, have continued to recognize and reward Boardwalk with high retention rates, long average tenant stays, and consistent positive feedback on our community and customer experience initiatives that differentiate our homes and communities from others. Our Net Promoter Score ("NPS") in 2021 of 76 continues to grow higher relative to our own past records and is considered a world-class customer satisfaction score.
Southpointe Plaza Regina, SK
Investing in our Portfolio
In addition to ensuring the longevity of our portfolio, our value-enhancing capital improvement strategy remains disciplined and focused on investments that provide targeted stabilized returns on our investments. The development of our value-add program has significantly improved our in-house, supply chain management and renovations processes and allowed us to pivot and respond quickly to the ever-changing demands of the rental market. The majority of our value-enhancing capital improvement investments are focused on affordability, great value for our Resident Members, which yield strong returns. These renovations include partial suite renovations as opposed to full suite renovations, which yield more affordable units, as well as refreshed common area repositions in our community and living brands to attract customers and increase our market share.
Boardwalk's three distinct brands and price points within its portfolio provide a diverse product offering to our Resident Members and caters to a broader housing demographic. This has resulted in increased demand stability within Boardwalk’s portfolio.
Solid Financial Foundation
Boardwalk’s growing FFO combined with a maximum cash retention and recycling strategy provides significant cashflow for re-investment. This approach has allowed the Trust to re-invest cashflow into its own portfolio, and position the Trust for further growth. The continued low interest rate environment has presented a tailwind for the Trust’s FFO. Over 98% of Boardwalk mortgages carry insurance from Canada Mortgage and Housing Corporation, providing access to low-cost financing and limiting future renewal risk. This low-cost financing provides Boardwalk the opportunity to reduce our interest expense, providing increased cashflow to further re-invest into housing through improvements, acquisition, and development. The Trust’s leverage metrics continue to improve and present an opportunity for the Trust to take advantage of the current low interest rate environment to accelerate future growth.
Opportunistic Investments
In 2021, we continued to accretively grow our portfolio with the acquisition of two large communities in Banff, AB, and in Victoria, BC. These new additions to our portfolio provide additional scale in these markets, while also providing additional cashflow to the portfolio. In addition, the Trust continues to be active in developing new residential communities in supply constrained markets. Boardwalk’s development in Brampton, ON continues on budget and on-time with delivery of our first tower slated for the second half of 2022. Our two development sites in Victoria are nearing appropriate entitlements, and we are looking forward to creating amazing communities in these markets. Boardwalk’s non-core asset recycling continued in 2021 with the sale of four non-core assets. These sales provided the Trust with attractive capital for recycling with some proceeds invested in Boardwalk’s own portfolio via our normal course issuer bid. In 2021, Boardwalk repurchased and cancelled 438,000 Trust Units at an average price of $54.84. The sale of non-core assets at or at a premium to their implied value, and the recycle of proceeds to Boardwalk’s own Trust Units at a discount represents an attractive and accretive use of proceeds from non-core asset sales.
2022 Outlook
We are well positioned to continue our organic growth strategy by further gaining market share, continuing our success on sustainable incentive reductions in our Alberta and Saskatchewan portfolios, while also focused on optimizing rental rates on turnover in our Ontario and Quebec portfolios. Affordability and value remains essential in all housing markets, and Boardwalk is well-positioned in our core markets with some of the most affordable rents in Canada. We are continuing to lead in providing the best value in housing to our Resident Members. The Trust will maintain a strong financial foundation, while taking advantage of our flexible balance sheet for opportunistic investments. To ensure our ability to take advantage of opportunities that arise, adequate liquidity will continue to be maintained. We are committed to growth in our key performance metrics of FFO per unit
Our Goals
Organic Growth
Accretive Capital Recycling
Increasing Asset Value
Solid Financial Foundation
CREATING STAKEHOLDER VALUE 2021 Results
Total rental revenue growth of 1.1% Achieved stabilized property NOI growth of 0.1% Achieved NOI margin improvement of 50 basis points
Sold 327 non-core units in Edmonton and Saskatoon Acquired 114 units in Victoria, BC and 81 units in Banff, AB Repurchased and cancelled 438,400 Trust Units at an average purchase cost of $54.85 per Trust Unit through normal course issuer bid
Net Asset Value per Unit (1) growth of 16% Repositioned/renovated 15 properties and renovated over 1,790 apartment suites Cumulatively renovated 45% of common areas & 29% of suites
98% of mortgages are CMHC insured Interest coverage at 2.97
Profit (loss) of $446,267 FFO (1) of $150,207; AFFO (1) of $117,920 FFO per Unit (1) of $2.94 (2021 Guidance range of $2.89 – $2.95) AFFO per Unit (1) of $2.31 (2021 Guidance range of $2.24 – $2.30) 2021 Total Return of 63%
(1) A non-GAAP measure. Please refer to the Trust's Management Discussion & Analysis for the years ended December 31, 2021 and 2020 for definitions, reconciliations and the basis of presentation of Boardwalk REIT's non-GAAP measures.
and NAV per unit, and as such will continue to focus in on optimizing our largest opportunity of strong organic growth, combined with accretive acquisitions in the markets we have identified that provide both cashflow and capital appreciation. The trading of non-core assets provides access to low cost equity capital toward unique arbitrage opportunities such as our own Trust Units which are currently trading below valuations seen in the private market. Boardwalk’s Trust Units are currently trading at an equivalent value of $170,000 per apartment door, and approximately at a 4.9% cap rate on our most recent fiscal year NOI. This compares to our estimated NAV of approximately $190,000 per apartment door which represents a 5.2% cap rate using stabilized NOI, or a 4.5% cap rate on our 2021 NOI. Replacement costs continue to trend higher with inflating input costs and are significantly higher than our current valuation. Thank you to you, our Unitholders for your support, as we continue to focus on continuing our track record of strong and sustainable financial performance. Thank you to CMHC and our financial partners for your support in the delivery of the best product quality, service and experience to our Resident Members. Thank you to our Boardwalk Team of Heroes who work persistently and tirelessly to ensure we are providing our essential service of housing. And lastly, thank you to our Resident Members for calling Boardwalk Home.
With love always,
SAM KOLIAS
OUR COVID RESPONSE
Our top priority remains the health and safety of both our Resident Members and our Team in delivering our essential service of housing to our Residents across the country. We remain ever grateful for our front line and essential service providers, including our Boardwalk Team of Heroes who work tirelessly to provide safe and affordable housing in all our markets.
Doing Our Part
• All team members equipped with PPE • Launch of online, self-service application (Yuhu) − Online rental payments − Online maintenance requests − Online chat for Resident Members
− Virtual showings − Digital lease signing • Increased cleaning and sanitization of common areas • Launched a dedicated Resident Member COVID information website: www.bwalk.info
• Reiterated Boardwalk’s flexible payment options • Financial support for Residents in need • Community engagement between Residents and local businesses
• Regular communication and updates between
Residents and Associates
Executive Team
